Heating up

Research evidence excerpt

Heating up

We are long

30y Netherlands vs Germany, given relative fiscal/issuance dynamics.

Political uncertainty remains acute and gilts remain sensitive to political

risk. The MPC stayed on "active" hold at the June meeting.

UK: Gilt 2/10s steepening is increasingly being seen as a likely path of least

resistance. But it remains fundamentally a monetary policy-driven curve UK trade.

Gilt ASW remains vulnerable to any negative effect on the public finances

from the energy shock. Positioning remains long, given favourable C+R in

the 10y sector and very limited long-end supply in Q326.

JGB supply-demand conditions have likely aggravated the upward

pressure on yields. We expect continued upward pressures on JGB yields.

Japan

Evolving supply-demand conditions suggest that upward pressure is likely

to be more pronounced in the 10y sector than the super-long.

Macro divergence and higher-for-longer Fed support USD strength;

USD selective longs still justified, especially vs Asia, but stretched positioning

and weaker summer data complicate near-term path.

Euro’s “anti-dollar” appeal fading as US outperformance persists; ECB

EUR hikes largely priced, weak growth risks reversal; near-term EURUSD

downside may pause on softer US data and stretched USD sentiment.

DM FX

JPY weakness now driven by hawkish Fed rather than oil; heavy short

JPY positioning raises intervention risk, but any rebound likely unsustainable

if Fed repricing persists.

GBP resilient despite politics; fiscal premium mostly priced out, near-term

GBP risks tilted modestly lower; medium-term stability vs EUR, supported by

carry as BoE unlikely to ease quickly.

CNY expected to appreciate gradually (slower pace) with PBoC leaning

against strength, as overvaluation vs peers, softer exporter flows, and less